Rep Pushes Payout Bill

Welch will introduce bill to mandate 5 percent endowment payout

A U.S. congressman said yesterday that he will introduce legislation this January requiring colleges and universities to spend at least 5 percent of their endowments each year, a move that follows months of heated debate over the prospect of such a mandate.

Representative Peter F. Welch, Vermont’s Democratic congressman, said in an interview yesterday that his bill will likely require endowment spending to meet a five-percent floor over rolling three-to-five year periods, instead of a strict limit that colleges meet the five-percent target each year.

The legislation follows nearly a year of threats from some lawmakers—notably Republican Senator Charles E. Grassley—to mandate a minimum level of endowment spending, which they say would increase college affordability. The five-percent proposal would extend to colleges and universities the level of endowment spending required of other tax-exempt charities and foundations.

While Grassley, from his perch as ranking member of the Senate Finance Committee, has investigated the nation’s richest colleges and publicly called for a mandate, no actual legislation has been introduced.

Supporters of the legislation say colleges have been hoarding endowment returns in recent years even as they have hiked tuition and fees and given short shrift to financial aid.

“The overall goal is to get the attention of university leadership to focus with laser-like attention on cost,” Welch said in a phone interview from Vermont yesterday. “They can’t keep expecting the taxpayers to subsidize tuitions that are constantly beyond reach.”

Kevin Casey, Harvard’s associate vice president for government, community and public affairs, said he hoped Welch would “resist the temptation to legislate.”

“I think the turbulent markets we are witnessing at the moment demonstrate the need to preserve some flexibility,” Casey said, citing the broad range of programs that rely on support from the endowment.

Welch said he was aware that the financial downturn has impacted higher education endowments, but noted that the crisis has also affected parents and students who pay tuition.

“I expect college endowments will be down, but so will family savings,” he said. “We’re all going to be experiencing the pain.”

Despite months of market turmoil, Harvard’s endowment returned 8.6 percent for the year ending June 30, growing to $36.9 billion—the largest endowment total in higher education. Many other wealthy universities—including Yale, Princeton, Stanford, and MIT—have seen their endowments grow, albeit at a slower pace, even as the stock market has crashed.

Harvard officially targets 5-percent but has fallen short of the mark in all but one of the past 10 years. Its $1.6 billion payout rate this year—while the largest in University history—still did not break the five-percent threshold.
Despite criticism of its spending practices, Harvard has won plaudits for upping financial aid to students from middle- and upper-middle-income families beginning this year.

Grassley spokeswoman Jill Gerber, who could not be reached for comment yesterday, told the Yale Daily News earlier this week that Welch’s bill had not changed Grassley’s mind one way or the other about whether he would introduce legislation of his own.

Welch said he did not know whether his bill would pass next year, and cited the strength of the “higher education lobby” as a potential stumbling block.

“There’s a very powerful higher education lobby that circles the wagons,” Welch said. “But what I see is that more members of Congress on both sides of the aisle are growing increasingly concerned about what they see as [the] runaway cost [of] tuition.“

—Staff writer Clifford M. Marks can be reached at cmarks@fas.harvard.edu.